Moody's: United States "Substantially" Closer to Losing AAA Credit Rating

The United States has suffered a number of indignities over the past couple of years. Plunging real estate values. A financial sector that needed to be saved by a massive government intervention. Massive trillion dollar deficits. Sky-high unemployment rates.

The United States economy, which used to be a well-oiled machine, is now wheezing and sputtering down the road.

The one saving grace for the United States is that they still have a pristine AAA credit rating. It's a good thing too, considering the massive amount of money that the United States has had to borrow over the past number of years. US Treasuries are still considered to be the world's safest investment, which is why massive amounts of money will flow into debt that is backed by the US government in times of great economic distress.

Things are bad, but at least the US has its perfect credit rating - at least for now.

Moody's, which is one of the world's biggest credit rating agencies, continues to sound the alarm - the United States must get its spending under control or it will risk losing its AAA credit rating.

Now, a downgrade of US credit is certainly not imminent. As a matter of fact, Moody's may not have any intention of ever downgrading the credit rating of the United States - to do so would be a VERY big deal.

However, if the United States continues to add to their sky-high national debt load by posting trillion dollar deficits, then Moody's (and other credit agencies) will have an increasingly hard time justifying their rating.

Moody's isn't so much saying "Increase your finances or else we'll lower your credit rating" as "Please bring your deficits under control so that you don't make us look stupid".

The warning shot from Moody's was also fired at the UK, who will need to spend an increasingly outrageous amount of money to service their debt over the coming years.

While a credit rating downgrade would increase the borrowing costs of the United States (at an absolutely inopportune time when costs are expected to go through the roof over the next decade), it would also be a major slap in the face for the economic superpower.

It will be interesting to see how this situation plays out over the next few years, as, barring a miracle taking place, the United States will add about $9 trillion to its national debt load between now and 2020. Will the US still have AAA credit by the year 2020? Would Moody's (and other agencies) actually pull the trigger and downgrade the United States?

Source: Bloomberg.com - U.S., U.K. Move Closer to Losing Rating, Moody's Says


Filed under: The Economic Meltdown